Oversold conditions lift gold despite dollar climb, strong jobs data

SAN FRANCISCO (MarketWatch) — Gold futures settled higher Friday, defying price pressures from a sharply higher dollar and stronger-than-expected U.S. jobs growth, with some analysts touting the metal’s perseverance as a sign of positive change in sentiment after a lackluster week and monthly declines.

“The small drop and quick recovery we saw in gold was a clear sign that gold has been oversold and has no more time for the bears,” said Jan Skoyles, head of research at The Real Asset Co. “The downturn in gold has no more to give.”

Gold for April delivery
US:GCJ3
added $1.80, or 0.1%, to settle at $1,576.90 an ounce on the Comex division of the New York Mercantile Exchange. For the week, prices saw a 0.3% gain. February had marked their fifth-straight monthly loss.

‘Predicting a turn-around in gold these days is like begging the market to make you look stupid.’
Brien Lundin, Gold Newsletter

The precious metal finished the prior session with a minor gain of 20 cents and had been largely rangebound in recent days.

“The market interpreted today’s jobs data as being bearish for gold, and the metal initially sold off as expected,” said Brien Lundin, editor of Gold Newsletter. “The downturn failed to gain momentum, and this indicates that the selling has been exhausted.”

Still, he refused to say whether gold's “turn on a dime” Friday was the start of the a big short-covering rally he’s been expecting, pointing out that “predicting a turn-around in gold these days is like begging the market to make you look stupid.”

Job growth

The U.S. economy added 236,000 jobs in February and the unemployment rate fell to the lowest level since Dec. 2008. Economists polled by MarketWatch had expected the number of new jobs to rise by 160,000 and for the jobless rate to stay steady at 7.9%. Read: U.S. economy adds 236,000 jobs in February.

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The better-than-expected nonfarm payrolls data had already been, more or less, discounted by the markets, said Chintan Karnani, an independent bullion analyst based in New Delhi.

“There has been higher demand (investment as well as jewelry) in India, Asia and the rest of the world,” he said. “In India, today’s price was last seen around last October. This has resulted in greater demand.”

But not everyone was convinced that gold will be able to sustain gains.

The immediate market reaction to the payrolls data was negative, said Andrey Kryuchenkov, VTB Capital strategist, pointing out that the unemployment rate declined to 7.7% from 7.9%, “which is still far from the Fed threshold, but it is the latest macro dynamic that matters here.”

AFP/Getty Images

“Moreover, we know that within the [Federal Open Market Committee] itself, hawks are getting louder by the day calling for a soon QE3 wrap up and change to the low-interest-rate guidance,” he said in emailed comments, referring to the Fed’s third round of quantitative easing which has buoyed gold prices.

“Don’t expect a sustained rebound here; the market will remain depressed even if support at February lows holds up,” he said.

Also Friday, the dollar extended a climb against other currencies after the jobs data. The dollar index
DXY, -0.30%
which tracks the performance of the greenback against a basket of other major currencies, rose to 82.658 versus 82.245 seen just ahead of the data.

Strength in the dollar often puts pressure on dollar-denominated commodities.

Industrial metals gain on week

Among the key metals, silver added to its gains for the week, with May silver
US:SIK3
up 14 cents, or 0.5%, to $28.95 an ounce, for a climb of 1.6% from a week ago.

“Silver will be following gold’s performance but also benefitting from news of China’s better-than-expected trade data and industrial consumption,” said Skoyles. “We see it being bought as both an industrial and precious metal. There is also, of course, the element that you’re more likely to be able to afford silver over gold, and hence we see more safe-haven heading that way at the moment.”

Copper for delivery in May
US:HGK3
lost 1 cent, or 0.3%, to $3.51 a pound, but it was up around 0.2% for the week.

April platinum
US:PLJ3
rose $8.80, or 0.6%, to $1,603.90 an ounce, 1.9% higher for the week.

June palladium
US:PAM3
climbed $23.70, or 3.1%, to $782.75 an ounce, for a hefty rise of 8.7% from last Friday. That was the highest settlement for a most-active contract since Sept. of 2011, according to FactSet.

Investors have been fretting about supplies from South Africa following a recent mine strike and as industrial metals, platinum and palladium both benefit from upbeat economic data.

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